Clarification on GST Applicability on Additional/Penal Interest
<p><span>The Government of India has issued clarifications regarding the applicability of GST on additional/penal interest in cases of delayed payment of Equated Monthly Instalments (EMI). The key points from Circular No. 102/21/2019-GST are as follows:</span></p><ol start="1"><li><span><strong>Penal Interest on Late Payment of EMI</strong>:</span><ul><li><span>Penal interest charged on delayed EMI payments is considered as an additional value of supply and is subject to GST. The transaction between the seller and buyer includes this penal interest as part of the total value.</span></li></ul></li><li><span><strong>Exemption of Penal Interest</strong>:</span><ul><li><span>Penal interest charged for transactions involving loans or advances falls under the exemption as per Notification No. 12/2017-Central Tax (Rate). Thus, penal interest in such cases is not subject to GST.</span></li></ul></li><li><span><strong>Clarification on Tolerance of Act</strong>:</span><ul><li><span>The transaction of levying additional/penal interest does not fall under "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation," as it meets the definition of "interest" under Notification No. 12/2017-Central Tax (Rate).</span></li></ul></li><li><span><strong>Service Fee or Other Charges</strong>:</span><ul><li><span>Any service fee/charge or other charges levied in relation to extending deposits, loans, or advances are not considered interest and thus are not exempt from GST.</span> <a href="https://cms.plasament.com/storage/circular-cgst-102.pdf">circular-cgst-102</a><br> </li></ul></li></ol>